"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput

Trader Dan's free work will soon be available at www.traderdan.biz

Thursday, February 24, 2011

Hedge Funds continue drinking from the Bernanke Punch Bowl

Anyone who is still wondering why stocks had been rallying  nearly straight up since November of last year, prior to the drop over the oil price rise the last two days, has only to note this following blurb from an article posted at Bloomberg's web site today.

Hedge funds increased their net leverage in January to the highest level since October 2007, as they took advantage of record-low borrowing costs to bet that the U.S. equity rally will continue. Debt at margin accounts at the New York Stock Exchange minus cash and unused credit climbed to $46 billion, according to data released by NYSE yesterday.

I seem to recall a period of time in ancient history when the duty of the Central Bankers was to take away the punch bowl. This Fed not only refuses to take it away, they are offering Happy Hour specials.

Here is the full story....


If oil prices take a tumble any time soon, the equity markets will likely launch another big rally with bonds tanking hard. If oil stabilizes near current levels, the S&P will probably see two-sided trade as it pauses a bit to gauge how the economy is handling the higher gasoline and energy costs. If the events in Libya were to spread to Saudi Arabia, for any reason, all bets are off the table as the equity markets will get slammed by crude oil charging towards $120 for starters.

Gold is now caught up in this same waiting and watching game as is silver now to a certain extent, athough it has been moving higher for other reasons than what are moving gold.

If there is going to be any short squeeze or issues associated with potential delivery problems in silver, they are going to affect the March contract next week. Watching how that process unfolds and what becomes of the board structure for the various contract months in silver will tell us a great deal as to what is transpiring.

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